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Analyst Blog

We reiterate our long-term Neutral recommendation on Amdocs Ltd. (DOX - Analyst Report). The company reported mixed financial results for the third quarter of fiscal 2013. While the bottom line surpassed the Zacks Consensus Estimate, the top line fell below the same. Amdocs currently has a Zacks Rank #3 (Hold).

Why Kept at Neutral?

Amdocs is well positioned in the market as carriers sell bundled and converged IP-based network solutions to their subscribers. As the network became more complex, carriers started spending more on customer care and billing software. Amdocs offers integrated customer management systems, which are essential for carriers to prevent customer churn. Huge opportunities exist for Amdocs as more telecom companies started deploying 3G/4G networks.

Amdocs has the largest customer base and the broadest product line in the industry, including a full suite of end-to-end solutions for both Business Support Systems (BSS) and Operations Support Systems (OSS). The total order backlog was $2,830 million at the end of the third quarter of fiscal 2013.

Amdocs’ business opportunity in the U.S. is more visible after stabilization of businesses with AT&T Inc. (T - Analyst Report) and renewal of long-term contracts with several leading telecom and cable TV operators like Comcast Corp. (CMCSA - Analyst Report). Recently, the U.K. wireless giant Vodafone Group plc. (VOD - Analyst Report) has signed a 5-year global managed services agreement with Amdocs to optimize its customer care and billing activities.

Nevertheless, Amdocs is exposed to the global economic downturn, particularly those events that affect the telecommunications industry. The macroeconomic scenario is yet to recover completely. In addition, delay in business transformation on the part of the carriers may reduce capital spending. Economic and political uncertainty in Europe may jeopardize the company’s financials, going forward. Furthermore, as the company is operating globally, it is also exposed to foreign currency exchange rate risk.

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